Israel's prime minister has rejected U.S. calls to halt construction in disputed east Jerusalem, clouding a new peace mission by Washington's Mideast envoy.

Benjamin Netanyahu's made the comments to Channel 2 TV, shortly after the arrival of envoy George Mitchell on Thursday.

Netanyahu declared: "There will be no freeze in Jerusalem."

Netanyahu was repeating a long-standing position, but the timing of the statement threatened to undermine Mitchell's latest efforts to restart peace talks.

The U.S. wants Israel to stop building homes in east Jerusalem, the section of the city claimed by the Palestinians.

Relations have been strained since Israel announced plans to build 1,600 new homes in east Jerusalem.

THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP's earlier story is below.

Aides to Israel's prime minister said Thursday that he has officially rejected President Barack Obama's demand to suspend all construction in contested east Jerusalem, a move that threatens to entrench a year-old deadlock in Israeli-Palestinian peacemaking.

The aides said Israeli Prime Minister Benjamin Netanyahu delivered his government's position to Obama over the weekend, ahead of the scheduled arrival later Thursday of the U.S. president's special Mideast envoy, George Mitchell. They spoke on condition of anonymity because the contact between the two leaders was private.

Washington had put Mitchell's shuttle diplomacy on hold for more than a month as it awaited a reply from Israel. Aides to Netanyahu provided no information on whether the Israeli leader had offered any other concessions to the Palestinians in an effort to restart the long-stalled talks.

But with Israel eager to ease tensions with its closest and most important ally, it appeared likely the Jewish state tempered its rejection with other confidence building gestures toward the Palestinians.

The status of east Jerusalem, home to shrines sacred to Muslims, Jews and Christians, is the most emotionally fraught issue dividing Israelis and Palestinians. The Palestinians claim the city's eastern sector as the capital of a future state, but Netanyahu has insisted repeatedly that Israel will retain control of the entire city as its capital.

Israel and the Palestinians had been set to launch U.S.-mediated negotiations last month when Israel announced plans during a visit by Vice President Joe Biden to build 1,600 homes in a Jewish housing project in east Jerusalem.

The announcement infuriated the Americans and the Palestinians put the negotiations on hold. U.S. officials have been pushing Israel to call off the project, freeze further construction in east Jerusalem and make other goodwill gestures to the Palestinians.

Netanyahu has argued that his position on east Jerusalem mirrors the long-standing policy of past Israeli governments.

"It is just impossible and unacceptable that people try to impress us that we should limit construction in Jerusalem," Benny Begin, a senior Cabinet minister, told foreign reporters and diplomats Thursday. "Jews and Arabs can live throughout the city. This policy will be retained."

Nearly all of the Israeli construction in the city's eastern sector has been in Jewish neighborhoods, where 180,000 Israelis live. An estimated 250,000 Palestinians live in traditionally Arab neighborhoods.

Palestinian negotiator Saeb Erekat called the Netanyahu position "very unfortunate" and said he hoped the U.S. "will be able to convince the Israeli government to give peace a chance by halting settlement construction in east Jerusalem and elsewhere."

Asked if anything short of an east Jerusalem construction freeze would bring the Palestinians back to the negotiating table, Erekat said it would depend on what Netanyahu told the Americans.

The Israeli government has debated proposals to free some of the thousands of Palestinian prisoners held in Israeli jails, turn over more West Bank territory to the control of Palestinian security forces and possibly curb Jewish construction in the heart of Arab neighborhoods in east Jerusalem.

Netanyahu's spokesman, Mark Regev, said Israel was exploring ways to restart talks, but refused to elaborate.

A Palestinian official said Mitchell was expected to meet separately with Netanyahu and Palestinian President Mahmoud Abbas on Friday.

Mitchell's efforts are focused on launching indirect peace talks, the official said, speaking on condition of anonymity pending a formal announcement on Mitchell's mission from the Americans.

Israel captured east Jerusalem from Jordan in the 1967 Mideast war and immediately annexed it, and does not consider Jewish construction there to be settlement activity.

The Palestinians and the rest of the international community do not recognize that annexation or distinguish construction there from settlement activity in the West Bank, which Israel did not annex after capturing it, too, in the 1967 war.

Last week, Obama issued a surprisingly pessimistic assessment of peacemaking prospects, saying the U.S. couldn't force its will on Israelis and Palestinians if they weren't interested in making the compromises necessary to end their decades-old conflict.